Is Europe at a crossroad?

Almost a year ago, French President Emmanuel Macron made headlines when he warned Europe was in danger of becoming a US ‘vassal’.

At the time, tensions between the US and China were exacerbating over Taiwan, with  Beijing claiming it a part of its territory.

“If the tensions between the two superpowers heat up,” Macron warned, “we won’t have the time nor the resources to finance our strategic autonomy and we will become vassals.”

Just days before Macron’s comments, analysts at one of Europe’s leading think-tanks had used virtually identical language to describe the EU-US relationship.

In a controversial policy brief,  Jeremy Shapiro and Jana Puglierin of the European Council on Foreign Relations (ECFR) — funded by EU member states and institutions — argued that Europe’s lack of political unity and declining economic, technological, and military power relative to the US meant it had “embarked on a process of ‘vassalisation’.”

The authors pointed out that with the possible exception of France, “Europe has almost completely renounced the idea of greater strategic autonomy” – they also gave a less than flattering view of Germany, considered Europe’s economic powerhouse, chastising its lack of authoritativeness.  

One year later, Shapiro noted that the imminent prospect of Donald Trump returning to the White House galvanised some EU policymakers, into pushing for greater European strategic autonomy.

“The evolution in the last year is that the prospect of a Trump administration has made [EU member states] a lot less comfortable,” Shapiro told Euractiv on Monday (8 April).

“And so in that sense, they’re taking some steps – I wouldn’t exactly say to end vassalisation – but to be prepared to end it if they have to, if the Trump administration comes in.”

A regrettable regression?

Yet, Shapiro argued that there has been a continued trend towards an ever greater power imbalance within the US-EU alliance, over the past couple of years.

Arguably, nowhere is this power discrepancy between the two blocs more evident than in the case of GDP growth.

According to the latest available IMF estimates, the US economy grew five times more than the eurozone’s last year, US 2.5% compared to EU 0.5%, and is set to grow by more than twice as much again this year, US 2.1% compared to EU 0.9%. 

“If you think of a world in which geopolitical tensions are going up and in which you have to rearm, being the slow grower is not good news. You are drifting down the economic league table,” Sander Tordoir, a senior economist at the Centre for European Reform (CER) think-tank, told Euractiv. 

Tordoir also points to the US’s continued dominance of the global financial system and the EU’s large trade surplus with America, as other examples of Europe’s “huge” reliance on the US.

“On both finance and on trade, we are definitely heavily dependent on America,” said Tordoir.

“I don’t know if I would use the phrase ‘vassal’. But there are really huge dependencies,” he added.

Does US LNG risk becoming a source of geopolitical leverage?

Shapiro noted that it is EU imports of US goods — and in particular the bloc’s massive increase in purchases of American liquefied natural gas (LNG) — that have especially exacerbated the power imbalance between Washington and Brussels in recent years.

According to the latest European Commission figures, Europe’s LNG imports from America have nearly tripled since 2021 from 18.9 to 56.2 billion cubic metres.

Washington was also the bloc’s largest supplier of the fuel last year, accounting for half of European LNG imports.

The reconfiguration of energy supplies – prompted by the energy crisis triggered by Russia’s full-scale invasion of Ukraine in February 2022 – yielded particularly pronounced effects on Germany, which were compounded by existing challenges, including slowing Chinese demand.

Last month, Germany’s economists cut the country’s growth forecast for 2024, from 1.3% to just 0.1% – confirming earlier warnings by  German Federal Minister for Economic Affairs and Climate Action Robert Habeck, describing the country’s economic situation as “dramatically bad”.

While ECB President Christine Lagarde called for a revamp of the manufacturing-heavy and energy-intensive “German model”.

“The structure of the German economy has been eroded by, in the first instance, the change in energy [supply] away from Russia toward much more expensive American energy, [and] in the second instance, the progressive loss of the China market,” Shapiro said.

“So, [of the] two very central underpinnings of the German economy, [the] first one collapsed and the second one has eroded.”

Issues with the German case were replicated at the wider European level, Shapiro noted.

Europe’s energy dependence on Washington was in fact weakening the continent for two reasons he argued: first, because LNG is more expensive than Russian gas; and second, because it provides the US with additional potential leverage over Europe.

Promisingly, however, Shapiro noted that the US has not tried to use this dependence “as a source of structural power.”

“Why would they?” he said. “They have plenty of other sources of structural power.”

Although, he added, “I think what you won’t see is EU member states being able to negotiate any sort of geopolitical discount on US LNG.”

Such remarks are arguably reminiscent of the definition of power offered by American science fiction writer Joan D. Vinge.

“Real power is control,” Vinge wrote in her award-winning novel The Snow Queen. “Knowing that you can do anything … and not doing it only because you can.”

[Edited by Anna Brunetti/Rajnish Singh]

Chart of the Week

The EU and US economies were more-or-less equal in size until 2011, at which point they began to diverge — with the US economy growing significantly faster than its European counterpart.

Worryingly, the IMF projects that the discrepancy between the two economies become even greater over the next few years.

Economic Policy Roundup

Eurozone finance chiefs fear trade jitters could get in the way of EU competitiveness plans. Eurozone finance ministers are pushing trade higher on their agenda to ensure increased geopolitical focus on economic security and ‘de-risking’ strategies do not hinder their plans to shore up the bloc’s competitiveness. As Eurogroup ministers met in Brussels on Thursday (11 April), their focus on trade is meant to clear the path for next week’s special summit of EU leaders, who are expected to sketch out a strategy for boosting Europe’s single market and competitiveness. Read more.

European wealth tax could fund EU budget, Oxfam study finds. A European wealth tax could raise funds nearly 50% greater than the entire annual EU budget, Oxfam reported on Thursday, just as political support for the policy seems poised to retrench amid the bloc’s anticipated shift to the right after June’s European elections. The NGO noted that a total of €286.5 billion could be generated yearly by levying a 2% tax on European citizens with a net wealth of over €4.6 million, 3% on wealth above €45.7 million, and 5% on wealth over €913 million. Read more.

ECB freezes rates again, but hints at cuts to come. The European Central Bank held interest rates steady again Thursday but said slowing inflation could open the door to easing monetary policy, raising hopes of a first cut in June. It was the fifth consecutive time the central bank has frozen borrowing costs, with the key deposit rate sitting at a record high of four percent. Read more.

Recovery fund should be ‘blueprint’ for future joint borrowing, Gentiloni says. The EU’s economic chief Paolo Gentiloni called for turning the bloc’s Recovery and Resilience Facility (RRF) into a “permanent” resource at a conference on Tuesday (9 April), saying the “temporary nature” of the programme has so far prevented it from unleashing its full potential. “I have no doubt that the EU would benefit hugely from a permanent, safe asset commensurate with the size of its economy, and this will be a big issue to discuss for the next Commission,” Gentiloni said. His call was backed by Belgian state secretary Thoams Dermine (PS/S&D), who said due to the “limited” possibility for member states to boost public investments, such as for the green transition, under the EU’s fiscal rules, a replication of the RRF was the “only solution”. Read more.

EU auditing body chief says there is “absolutely” a risk that the recent scandal involving the alleged embezzlement of €600 million from the bloc’s pandemic recovery fund could be repeated. In an interview with Euractiv on Tuesday (April 9), European Court of Auditors (ECA) president Tony Murphy stressed that last week’s announcement that 22 individuals had been arrested in Italy for defrauding hundreds of millions of euros from the EU €723.8 billion Recovery and Resilience Facility (RRF) followed persistent warnings that a lack of central oversight was amplifying the likelihood of the funds’ misuse. “Because of the limited control, or lesser control framework, compared to the standard EU funding based on multi-year budgeting (MMF), the risk of such incidents occurring is high,” Murphy said. Read more.

[Edited by Rajnish Singh]

Read more with Euractiv